The idea of differentiated bank licences – first mooted in 2008 – gathered steam in 2013 when the Nachiket Mor committee recommended encouraging the establishment of differentiated banks to deepen financial inclusion. Guidelines for small finance banks and payments banks were issued in November 2014, and in April 2016 the Reserve Bank of India (RBI) said it would consider licensing other differentiated banks.
On 7 April this year, the RBI issued a discussion paper on establishing wholesale and long-term finance (WLTF) banks. The core activities for WLTF banks would be deposit and loan products for wholesale clients, and providing financing to the infrastructure sector. The sources of funds for WLTF banks would be term deposits, debt and equity raised through public issues or private placement, rupee denominated bonds issued locally and overseas, and term borrowings from banks and financial institutions.
As the core function of WLTF banks would be lending, any retail deposits would need to exceed a proposed minimum of ₹100 million (US$1.5 million), which would also limit the banks’ exposure to retail deposits. WLTF banks could further be allowed to prescribe “reasonable restrictions” on withdrawal of such deposits.
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Sawant Singh and Aditya Bhargava are partners at the Mumbai office of Phoenix Legal.
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